PAHCS to start $7.4 million building project

This article submitted by Michael Jacobson on 3/07/01.
Ground will be broken as soon as it thaws for a $7.4 million expansion and remodeling project at the Paynesville Area Health Care System's main campus in Paynesville.

The board of directors of the hospital district gave the go ahead to the project at their meeting on Wednesday, Feb. 28. The board approved 28 bids, totalling $5.1 million, and voted to get $6.9 million in financing to cover the cost of the project.

The bids were presented to the board by Kevin Becker of E & V Consultants. Instead of using a general contractor, PAHCS has hired E & V as construction managers for the project. This is the same company that is coordinating the school building project. Click here for bid box.

By having a construction manager, the project was bid in smaller pieces. The largest items for bid were plumbing and heating ($1,056,000), ventilation ($674,000), and electrical ($467,535). The cost of the infrastructure improvements is due partly to the fact that the project includes extensive remodeling, which is always more complicated than new construction.

These areas were the only ones where the bids came in more than projected, by about $500,000 according to Willie LaCroix, hospital administrator. This cost could be offset, though, by the dropping interest rates.

The hospital, clinic, and nursing home are not ideal places for remodeling. The work can't be shut down for construction, so the construction will have to be coordinated to keep PAHCS's operation functioning at all times. LaCroix estimated that the project cost at least 20 percent extra because of the hassle of remodeling.

This project has been on the drawing board for more than a year, but the complexity of the mechanical and electrical plans delayed it for at least six months last year.

The board, on the advice of Becker and architect Richard Engan, did not award bids for carpeting or illuminated signage. These items will be rebid with the wall finishes.

In all, the construction of the project should cost $5.8 million, with another $1.2 million in professional fees and administration costs. The project has $400,000 in contingency, giving it a total cost of $7.4 million.
The contingency is up from $250,000, according to Becker. The budget also includes $50,000 for asbestos abatement, fearing that some insulation with asbestos will be found on some of the old pipes.

The board also voted to accept $142,000 in mechanical alternatives.

PAHCS has already paid $542,000 toward the project, leaving $6.9 million to be financed. Right now, interest rates are going down, which is favorable to PAHCS. The rate offered right now is 5.25 percent for a 22-year capital lease. But this rate could go down more before PAHCS needs the money in June.

Prior to the bid opening, Jeff Gendreau of Deloitte and Touche, the board's financial advisor, presented a debt capacity study that showed that PAHCS could afford the project. As a growing entity, PAHCS has recorded healthy profits in the past couple years, but its expansion efforts have made cash flow tight.

According to Deloitte and Touche's analysis, the system could face a cash crunch in 2003, when the project is done and the first payments are due. But rising profits should make it easier by 2004.

The project includes dining room additions to the Koronis Manor, a small addition to the clinic, a new emergency room and nurse's station in the hospital, and a wing to the north for maintenance and receiving. This addition is needed so the existing space can be vacated and used by the outpatient clinic.

A second surgical suite will be added, three birthing rooms created, and extensive remodeling work in the nursing home will be done. The nursing home will be reroofed, will have a sprinkler system installed, will have its dining room divided into more intimate sections, and will have its bathrooms and tub rooms improved.

In addition, plumbing, heating, electrical, and other infrastructure work will be installed to accommodate future expansions.

Construction will start this spring, with the additions going up first and the remodeling following. Construction should last around 18 months, meaning an estimated completion date of October 2002.

The vote to accept the bids and move forward was unanimous except for Mel Jones, of Paynesville Excavating, who abstained to avoid a conflict of interest.

"I really believe you made the right decision tonight," LaCroix told the board after the vote. "It's a big project. The easiest thing would have been not to do it, but then five years from now you'd be facing some tough decisions. 'What do we do now?' "